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Australasia and the Trans-Pacific Partnership

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After more than nine years, the Trans-Pacific Partnership (TPP) was signed in Atlanta, USA on 5th October 2015 by 12 Pacific-rim countries, including Australia, New Zealand, USA, Japan, Brunei, Canada, Chile, Malaysia, Mexico, Peru, Singapore and Vietnam. The TPP creates the world’s largest free trade area, involving countries that account for 36.1% of the world’s GDP in 2014. Find out who will be the winners and the losers in Australasia.

Marathon talks lead to history-making trade deal

After more than nine years, the Trans-Pacific Partnership (TPP) was signed in Atlanta, USA on 5th October 2015. Announced in Australasia during the early hours of Tuesday 6th October, the multilateral trade deal was signed by 12 Pacific-rim countries, including Australia, New Zealand, USA, Japan, Brunei, Canada, Chile, Malaysia, Mexico, Peru, Singapore and Vietnam.

The TPP negotiating process was developed by member countries of the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP or P4), signed by Brunei, Chile, New Zealand and Singapore in 2005. The TPP was set in motion in 2008, with the US entering negotiations, followed shortly by Australia, Peru and Vietnam. 19 negotiation rounds were held between 2010 and 2013; however, this was advanced by chief negotiators and ministerial meetings between 2014 and 2015, culminating in the signing of the agreement in October.

Why does the Trans-Pacific Partnership matter?

So, why is the TPP so important and why has it generated so much press coverage over recent years? The TPP creates the world’s largest free trade area, involving countries that account for 36.1% of the world’s GDP in 2014. Also, while bilateral trade agreements have monopolised the world stage of late, this is one of the first multilateral trade deals in decades. From an Australasian perspective, the TPP involves major Pacific trade partners for both Australia and New Zealand. In fact, for New Zealand alone, exports to TPP countries accounted for 39% of all exports in 2014. Similarly, exports to TPP partners accounted for 32% of all exports from Australia in 2014. Probably the most attractive feature, the TPP grants Australia and New Zealand preferential access to the US economy – a dream that successive Australasian governments have long chased. For New Zealand, this is in addition to preferential access to the economies of Canada and Japan.

The TPP includes several policies that seek to liberalise trade between its signatories, including reducing tariffs. Nonetheless, the agreement also addresses non-tariff barriers that will result in promoting investment and the trade in services between the 12 countries.

However, the multilateral trade agreement may not be solely economic in nature and may also possess political objectives. When announcing the signing of the TPP, US President Barack Obama stated that “when more than 95 percent of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy. We should write those rules, opening new markets to American products.” Indeed, some commentators have contended that the US aims to use the TPP to offset China’s rising global economic and diplomatic influence, a major facet of the Obama administration’s pivot to Asia strategy.

Winners: Beef and horticulture

The TPP is expected to remove approximately A$9 billion of import taxes from Australian trade. Australian sugarcane producers are expected to gain access to the US sugar market, while Australian beef farmers will benefit from the reduction in Japanese beef tariffs. Australian beef farmers will also profit from the removal of the Australia-US Free Trade Agreement (AUSFTA) beef safeguard into the US. The seafood and horticulture industries will also experience tariff reductions, while grains, cereals and rice will receive preferential quota access. Through the TPP Japan has agreed to create a new 6,000 tonne quota for Australian rice, with the Japanese market being particularly attractive due to its demand for premium rice varieties. In the mining sector, the TPP allows for the immediate removal of tariffs on exports of iron ore, copper and nickel to Peru and on energy exports to Vietnam.

The TPP is expected to eliminate tariffs on approximately 93% of New Zealand’s exports to the US, Japan, Canada, Mexico and Peru. New Zealand beef farmers are also set to benefit from the TPP, with unrestricted access to the US and tariff reductions from 38.5% to 9% in Japan over 15 years. Furthermore, New Zealand’s horticulture industry will see all tariffs eliminated through the TPP. At present, tariffs on horticulture products in most TPP markets are comparatively low (or already at zero) due to existing trade agreements, however, the inclusion of Japan is significant for the industry. Although Japan accounts for approximately 37% of all New Zealand horticulture exports to TPP countries, it accounts for approximately 90% of the tariffs paid by New Zealand exporters in all TPP markets. This is particularly good news for New Zealand’s kiwifruit industry.

Nonetheless, it’s not just primary industries that are likely to benefit from the TPP, with the agreement expected to extend to the services industry. Universities and vocational providers are expected to gain greater access to Malaysia, Japan, Brunei, Mexico, Peru and Vietnam. The TPP also promotes e-commerce, which may mean that overseas internet firms can more easily target Australian and New Zealand consumers; it remains to be seen if this will negatively impact bricks and mortar stores in Australasia. Furthermore, the TPP may also lead to more competition in global mobile roaming services.

Falls short on dairy, but what’s the alternative?

Despite dairy negotiations going down to the wire, the dairy industry in New Zealand is not expected to gain as much through the TPP, with tariffs remaining in key markets, e.g. US, Japan, Canada and Mexico. As one of the most protected sectors globally, these countries continue to be reluctant to liberalise their domestic dairy industries. Tariffs on cheese and whey will be eliminated in the long term in Japan, while infant formula tariffs will be eliminated in the US market in 10 years. Fonterra Cooperative Group Ltd announced its disappointment that TPP negotiations have not resulted in eliminating all tariffs on dairy products. However, New Zealand Trade Minister Tim Groser noted that “it is inconceivable that the TPP bus will stop at Atlanta...the TPP bus will move on”, signifying that as a result of the TPP, further trade liberalisation will likely take place in the Pacific region.

Biologics hold up talks, causes concern domestically

Discussions on the treatment of biologics stalled negotiations in the last few days, with Australia refusing to concede ground to the US. The US lobbied in favour of extending monopoly rights over biologics, or medicines derived from living organisms, which could have potentially increased costs for Australia’s Pharmaceutical Benefits Scheme (PBS). Biologics are typically used to treat cancer, multiple sclerosis, diabetes, and a range of immunological conditions, and are typically expensive medicines. The US was pushing TPP countries to adopt a twelve-year market exclusivity period, to protect biologics from follow-on products or biosimilars, which are akin to generics. The treatment of biologics was a deal breaker for Australia, with the country’s Trade Minister, Andrew Robb, succeeding in maintaining the five-year data protection period already in place through the Therapeutic Goods Administration. As a result, biosimilar products can gain marketing approval after five years, instead of twelve, and if listed on the PBS, will trigger a 16% price reduction on all versions of the product, making biologics cheaper, faster.

The devil’s in the detail

While the TPP has been finalised, each of the 12 signatories now need to ratify the agreement in their own countries. The TPP is unlikely to face strong resistance in either the Australian or New Zealand parliaments, but this is not guaranteed, as detailed summaries of the agreement have yet to be released publically. Early indications reveal the potential for a public backlash against the TPP in Australia over the Investor-State Dispute Settlement (ISDS) clause, which is a mechanism for corporations to sue governments. Australians are generally wary of any such clauses, particularly where public health is concerned, following attempts by tobacco company Philip Morris to sue the Australian government in 2015 for introducing plain packaging for cigarettes under ISDS provisions of a 1993 bilateral agreement with Hong Kong. During the TPP negotiations, the Australian government sought specific exclusions on companies able to utilise ISDS provisions, including tobacco companies. The TPP agreement thus contains ISDS safeguards to protect government legislation in the areas of public health, education and environmental policy.

Aside from this, it also appears that ratification will not be plain sailing in the US and Canada either. Democratic Party presidential candidate, Hillary Clinton, has recently criticised the TPP, despite advocating for the trade deal during her time as US Secretary of State. Furthermore, an upcoming election casts doubt on whether the TPP will be ratified in Canada. One thing is for sure, the TPP heralds an exciting time for each of the 12 countries involved and the world is watching with bated breath.

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